Stocks Greet May With Rare Rally

By

Jonathan Cheng And

Chris Dietrich

Updated May 1, 2012 6:59 p.m. ET

Sell in May? No way, investors say. At least not Tuesday.

A strong reading on domestic manufacturing prompted a rally in stocks, driving the Dow to its highest level in more than four years. S&P Capital IQ's Sam Stovall discusses whether it's time to 'sell in May and go away' on The News Hub. Photo: Reuters.

The old Wall Street adage calls for investors to pare back their stock holdings in May, then stay out of the market until the end of October, when stock gains tend to be more robust. It has been one of the most widely cited—and accurate —of market precepts.

But on Tuesday, investors brushed off that piece of wisdom. The Dow Jones Industrial Average rose 65.69 points to 13279.32, closing at its highest level in more than four years. With the day's gains, the blue-chip benchmark is now just 6.2% from the all-time high it reached in October 2007.

The Dow soared half an hour into the day's trading after a reading on the domestic manufacturing sector in April topped expectations.

The report, which showed increases in hiring and new orders, helped mute some fears that the U.S. economy is stalling. Many investors and market watchers have been worried that this year could see a repeat of 2010 and 2011, when early market rallies were snuffed out by a weakening U.S. economy and flare-ups in Europe's debt crisis.

That fear added more weight to the "sell in May" argument.

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"All that 'sell in May' stuff set us up for a good data point like this to cause a market rally," said Henry Herrmann, chief executive of asset-management firm Waddell Reed in Overland Park, Kan., which manages about $90 billion in assets.

"The market is likely to go through a choppy period before it gets cleared up," he said.

Already, many investors have shifted their focus to Friday's monthly jobs report, when economists expect the U.S. economy to have added about 170,000 jobs in April. The jobs market has been a source of angst in recent weeks. In March, just 120,000 new jobs were added—a disappointing number that followed three strong months of gains. And weekly initial jobless claims data have been soft.

The Dow started strong in 2012, rising 8.1% in the first quarter. But the gains slowed in April. Investors worried that the U.S. economy was slowing, but not by enough to warrant the Federal Reserve adding new stimulus. Also, trouble began to brew anew among Europe's debt-laden nations.

In April, the Dow eked out a gain of 0.01%, just enough to extend the index's winning streak to seven months—its longest such run in five years.

Tuesday's stock advance also extends another pattern this year: Stocks have risen on the first day of each month this year.

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Traders at the New Stock Exchange on Tuesday.
Reuters

All sectors of the market posted gains on Tuesday, led by energy and financial stocks.

The embrace of risky assets drove investors out of U.S. Treasurys, which tumbled, pushing the yield on the benchmark 10-year note up to 1.958%.

Stock markets in Germany, France, China and India were closed on Tuesday in recognition of May Day.

Among stocks in focus, Chesapeake Energy shares fell 6.1% in after-hours trading after a disappointing profit report. That followed a jump of $1.16, or 6.3%, to $19.60 in regular trading after the company agreed to separate its CEO and chairman roles.

Bank of America rose 20 cents, or 2.5%, to 8.31, and was the biggest gainer among the 30 Dow stocks after The Wall Street Journal reported it the bank plans to cut about 2,000 jobs.

Sears Holdings jumped 8.27, or 15%, to 62.05 after the retailer said it expects to announce an improvement in operations at its namesake stores when it posts first-quarter results next month. It was the strongest performer on the Standard Poor's 500-stock index on Tuesday, and has gained 95% this year.

Pfizer slipped 12 cents, or 0.5%, to 22.78 after reporting its first-quarter earnings fell 19% in the first full quarter since its blockbuster cholesterol drug, Lipitor, lost market exclusivity last year.

Auto makers reported the pace of new-car sales slowed in April. Ford Motor fell 5 cents, or 0.4%, to 11.23, after reporting that new-vehicle sales fell 5% in April from the prior year. General Motors rose 31 cents, or 1.4%, to 23.31 after reporting an 8.2% sales decline, though the company raised its full-year forecast for light-vehicle sales. Meanwhile, Chrysler Group's U.S. auto sales rose 20% in April as the auto maker saw particular strength in its namesake brand.

Elsewhere, P.F. Chang's China Bistro surged 11.79, or 30%, to 51.48 after it agreed to be acquired by a private equity firm for a 30% premium over Monday's closing price.

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Trader Robert Arciero works on the floor of the New York Stock Exchange last month.
Associated Press

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